There's a downside to the real-estate boom on Market Street
Grant's Tobacconists is a rare San Francisco business that can trace its roots all the way back to the Gold Rush. For more than 160 years, the company has been selling cigars, pipes, tobacco tins, house blends, and smoking accessories; legend has it Emperor Norton was among the early customers. It's also been home to California's first and largest walk-in humidor, and one of the only tobacco shops offering its customers a lounge area to smoke and relax in.
As of last month, however, you won't be able to find Grant's in San Francisco. A storefront on Market and 2nd Street has been home to the outfit since 1963 — but now, as a new gold rush hits the Market Street corridor, the rent has gone too high. Grant's lost its lease; what may be the oldest continuously operated small business in San Francisco is now homeless.
"It started as off them wanting to renovate and build into our space in the humidor," Jason Quijano, the store manager, said. "It seemed to me they just wanted us out. They definitely want to increase the rent in here and overhaul everything."
My Dutch Bike, right across the street from Grant's, also lost its home — under similar circumstances. The company is owned by Oscar Mulder and Soraya Nasirian and sells family-friendly, handmade Dutch city bicycles that allow people to ride safely around town with a small child in tote.
"We started in 2009. My husband is Dutch," Nasirian said. "We had a little baby and rode our bikes in Holland with our son up front. It was an amazing and eye-opening experience to be able to ride with my little one on my bike. It was liberating,"
For three and a half years, they've operated out of 575 Market Now, if you're looking for one of the Dutch specialty bikes, you'll have to order it online or hike up to 60 Gate Five Road in Sausalito, where the new store is.
Small businesses in San Francisco lose their leases all the time; rents go up, landlords want to renovate buildings ... it's just part of life for local entrepreneurs.
But the rent hikes along Market Street may be an indicator of a new wave of changes driven by the surge in tech money.
While Mayor Ed Lee is happily touting the changes that have come to Market Street — with tech companies drawn to the formerly rundown mid-Market area by healthy tax breaks — there's a downside to San Francisco economic booms. As landlords scramble to get in on the cash coming from companies willing to pay high rents, the little folks get pushed out.
That happened on a grand scale between 1999 and 2001, when the dot-com boom drove up rents and forced community businesses and institutions out. One of the most famous battles revolved around what was then the Bay View Bank building on 22nd and Mission streets, where a dot-com called Bigstep took over space that had been used by community-serving businesses (immigration lawyers, tax advisors, nonprofits). All of the existing tenants were forced out; many left the city. Across the street, a dance studio that served hundreds of people and several organizations was evicted to make room for a dot-com.
It's a challenge that the city can't seem to handle: How do you do economic development in an area that needs it without forcing longtime tenants who have reasonable rents out of town?
Thea Selby, a candidate for District 5 supervisor, runs a small business that's a direct victim of the Twitter Effect. Her company, Next Step Marketing, works with magazines, online entities, and occasionally newspapers. She and her seven employees were recently displaced after 10 years at Market and Mason.
"The landlord came to us about three months before our lease was up and said, 'We're going to raise the rent on this entire floor. We're going to take everybody out of here and we're going to put a high tech company in here because we can get 2-3 times the rent.' They were very blunt about it," Selby said.
"The city talks about the revitalization of mid-Market and it's still pretty dismal out there. But the rents are going through the roof. They think we're going to have a great high tech company and they're going to give us 5,000 jobs, so they bend over backwards for these companies and ultimately end up screwing the small businesses that are here in the boom and in the bust."
Now an entire floor of small locally owned businesses is looking for office space — and some may be lost to the city altogether. Selby said she and others are looking east, towards Oakland.
It's the same story up and down the city's major artery as San Francisco faces what John Kilroy, the head of the giant Kilroy Realty Co., told investors recently is the hottest commercial real estate market ever. J.K. Dineen, the Business Times reporter who covers real estate, quoted Kilroy saying, "I've never seen so much visible demand."
Chris Daly, a former San Francisco supervisor who recently shut down his bar, Buck Tavern, at 1655 Market, said the increasing rents made it impossible for him to stay in business.
"In discussions about the new lease for space, the property manager did mention mid-Market revitalization as a reason why the building owner was holding out for what she was holding out for," he told us. "Clearly in the last year, there's been huge speculation on commercial property. There's vacant spaces with asking prices that are pretty ridiculous."
He explained that the neighborhood is no longer friendly to an inexpensive operation: "I wanted to have a community-oriented type of place with reasonable prices. Unfortunately, the rent that was being asked would not allow that kind of format to work."
San Francisco Scooter Centre is on the ground floor of a boxy, three story, red-brick building on 10th Street, two blocks south of Market. Owner Barry Gwin says his business has been booming since the recession hit because scooters are a cost-effective alternative to driving when gas prices increase. Over the eight years, he's been at his current location he's seen other businesses on the block leave and, despite his success, he knows his time will come.
"It sucks," he says. "I know I won't be here in four years."
Others aren't as optimistic. Around the corner is a small nonprofit where an employee says she read in a local paper that her landlord sold her building to a developer who plans to build a hotel. After five years at the same address, her organization is going to have to find somewhere else to go.
In the second quarter of 2012, mid-Market's vacancy rate was above 29 percent — high if you consider the Financial District's vacancy rate is sub 10 percent. But as the end of the year approaches, that vacancy rate has fallen seven points.
John Bozeman of the Building Owners and Managers Association (BOMA) of San Francisco sees the neighborhood's appeal. "If I was trying to lease commercial space, I'd say it was attractive because it's near SoMa which is at capacity or near it," said Bozeman. "If you look at the Twitter headquarters, that's probably the biggest footmark on Market and tech survives around like-minded people."
There are some who have no fear of the coming changes. At the corner of Market and South Van Ness is a small eatery called the Pastry Cupboard. From her restaurant's window, owner Chona Piumarta points to a run-down hotel she calls an eyesore. And across the street is a parking lot she believes will be demolished for condos. She said new development is necessary for the area and she isn't concerned about big high tech companies like Twitter moving in.
"I'm not worried. We actually do business with Twitter. They order here occasionally and we deliver to them."